Logistics has
always been a critical part as one of the 4
P’s in Marketing:

Product

Place

Price

Promotion

The “Place”
component ensures the product is at the right
place, at the right time, in the right
quantity and the right quality.

"How the logistics discipline started and
where it is headed ?"

Military Roots :Logistics received recognition in
military operations during World War II. It
gained its momentum as it contributed to the
effective distribution of machinery and
supplies to troops. A service delivery failure
here may mean an increase in unnecessary
fatalities. Peter Drucker (a business guru in
the 1960’s) identified logistics as a growing
concern within business. This generated more
prominence towards the practice of logistics.

Deregulation of
Transportation in USA :As the economies in North America
evolved in the 1970’s and 1980’s,
transportation deregulation changed the
competitive landscape of business. Carriers
were free to charge their customers (Shippers)
a competitive rate for their shipments.

Warehousing companies that typically acted as
surplus inventory storage locations, married
up with transportation companies to offer
customers full-service solution capabilities.
This formed the beginning of the 3rd party
logistics business and paved the way for
outsourcing logistical activities.

Globalization : With the advent of globalization,
firms began to seek

ways of cutting their
production costs. Thus, multi-national
corporations re-located their factors of
production to low-wage countries to gain a
competitive advantage.

Increasingly, more and more countries are
joining the World Trade Organization (WTO) and
opening their country to foreign capital
investment (most recently in India and China).

Retail giants like WalMart exploit these new
efficiencies and increase their imports from
new emerging economies to reduce product
prices in their stores. Thus, the new
challenge is how to
manage the product and information flows
around the world. The increased
pressure on managing these operations further
underscored the importance of logistics as an
area for optimization.

Information
Technology : Another contributor that led to an
increased presence for logistics was the
explosion in information technology and use of
computers throughout the 1980’s and onwards.

The cost of computing has decreased year after
year since then and computing power rose
exponentially. The use of the Internet and
increased bandwidth capacity further enhanced
and enabled quick connectivity and
collaborative relationships that reduced
inventories and created a Just-In-Time
operating opportunity for organizations.

Supply Chain
Management :As the above factors fuelled
efficiencies, logistics gained more prominence
in organizations. A natural extension was to
link the logistical
operations from each firm to the entire supply
chain.

The new paradigm became known as the ‘systems
approach’ to supply chain management
and introduced the concept of trade-offs. In
order to achieve least total supply chain
cost, operational integration of the 5 main
areas of logistics must be simultaneously
optimized:

Warehousing

Transportation

Inventory

Order Processing
and

Lot Quantities

Optimizing any one
of these areas individually will sub-optimize
the system as a whole.
For example, a single warehouse in a network
would achieve the lowest warehousing cost.
This would create high transportation costs as
suppliers ship over greater distances to ship
products into the warehouse and conversely,
outbound to its market distribution area.
The addition of a second warehouse in the
network would reduce transportation costs more
than the marginal cost of operating the second
warehouse, which would reduce total supply
chain costs.

Future Challenges :

As the business landscape
constantly changes with mergers & acquisitions
and as globalization grows, there are
corresponding changes in the supply chain that
need to be continuously optimized to ensure
least total supply chain costs.

Radio Frequency Identification (RFID) and
other technologies will continue to drive down
inventories as better information is made
available in a timely manner. Since supply
chain activities cross over all functional

areas in an organization
(such as Marketing, Finance and Human
Resources), new metrics must be
developed to track true supply chain
costs and identify the impact on new
costs as corporate strategies change.
Organizations that measure and benchmark these
costs will have a sustainable competitive
advantage going forward.